National Association of Home Builders Discusses Economics and Housing Policy

Case-Shiller House Price Index Down Again

The Standard & Poor’s Case-Shiller house price index (HPI) continued the steady decline observed in recent months, with the Composite 20 index (CS20) falling 1.0% (not seasonally adjusted) and the Composite 10 (CS10) index down 0.9% (NSA) in January. This is the sixth consecutive month of decline. Year-over-year, the CS10 is down 2.0% and the CS20 is down 3.1% relative to January 2010.

Prices declined in 19 of the 20 cities covered by the index on a not seasonally adjusted basis (but were up in 7 cities on a seasonally adjusted basis). On a not seasonally adjusted basis, the largest declines were observed in Minneapolis (-3.4%), Seattle (-2.4%), San Francisco (-1.9%), Portland OR (-1.8%), Chicago (-1.8%) and Detroit (-1.7%) and Phoenix (-1.5%). Washington DC (+0.1%) was the only city to experience an increase on a not-seasonally adjusted basis.

The house price declines correspond with the trends in other key housing market indicators, with new home sales and housing starts trending down in recent months. Existing home sales have moved against this trend, experiencing relatively strong growth over the last six months. However, the rise has been fueled mainly by a steady increase in distressed sales and all cash sales, which have put downward pressure on house prices.

With the very weak home sales (both new and existing) and housing starts in January and February 2011, further declines in house prices are likely in the near term. However, we do not agree with the gloomy picture painted by Standards & Poor’s in their press release, “…the feared double-dip recession may be materializing.” In spite of the recent declines, the CS10 and CS20 are 2.8% and 1.1% above their respective April 2009 lows. Since reaching this trough, the overall trend in the composite indexes has been flat, despite the rise and fall associated with the various phases of the home buyer tax credit. While the volatility is likely to continue, we expect house prices to remain relatively flat through 2011, then to show modest growth in 2012.